Although the government expected 15.64 per cent year-on-year growth in leather and leather product exports in FY2022-23, Bangladesh posted just 0.42 per cent in the first 11 months of this fiscal year because of the ongoing global economic crisis.
After the sector posted negative earnings in April this year, industry insiders said that more challenges were likely to come as the key destination of leather footwear, the European Union (EU) countries, especially Germany, are facing a severe economic crisis.
They, however, had expected that the export market would turn around at the end of the year because the US economy was also improving and Bangladesh was receiving orders from foreign buyers.
The Commerce Ministry had set a target of $1.3 billion for July-May of FY23. But in the first 11 months of FY23, the country earned $1.12 billion from leather and leather product exports, according to Export Promotion Bureau (EPB) data.
It was $1.12 billion during the same period in FY2021-22.
Tannery owners said that the negative earnings will not impact the country’s rawhide market because almost all footwear exporters are not using local leather due to the lack of Leather Working Group (LWG) certification, and the rawhide exporters are still receiving a good number of orders from China.
Besides, due to the US dollar shortage, shoe manufacturers in local markets are increasingly using local leathers, which is helping the tanneries, they said.
Tajin Leather Corporation Managing Director Md Ashikur Rahman told The Business Post that as the country’s tanneries do not have LWG certificates, they are exporting most of the processed leather to China.
“Chinese companies are providing almost half the price than the Western buyers and we are bound to accept that offer now. Once we get LWG certification, processed leather export will jump. But I think it will still take another two-three years to get the certificate,” he added.
Ashikur said they are selling processed leather in the domestic market as it has become tougher to import due to the ongoing economic crisis and this is helping them to survive.
Product-wise exports
Bangladesh considers leather and leather products as emerging export items. But on April 8, 2017, the government cut off all facilities to all tanneries at Dhaka’s Hazaribagh to force them to move to the tannery industrial estate at Savar, following a High Court order demanding the relocation at any cost.
The move came amid allegations from tannery owners that Savar was not ready for production at that time. Bangladesh Small and Cottage Industry Corporation (BSCIC) has so far allocated plots to 154 out of 222 tanneries at the BSCIC Leather Industrial Park at Savar.
Six years have already passed but the relocation of the tanneries from Hazaribagh to Savar is yet to see any development with solid waste still being dumped into the nearby open spaces. Other compliance issues are also yet to be ensured, while LWG certification is mandatory for exporting leather and leather products to the Western market.
This is why the leather sector is still struggling and the country is now forced to export major finished leather to China, Vietnam and Thailand at below-fair prices, industry people said.
The data shows that the country earned $114 million by exporting processed leather during the period, which is 18.11 per cent lower than the same period of last fiscal year, and 29.58 per cent down from the Commerce Ministry’s target for July-May of FY23.
Besides, earnings from the leather footwear export also declined by 4.28 per cent to $644 million in the first 11 months of FY23, compared to the same period of FY22. The earnings were also 13.10 per cent lower than the ministry’s $741 million target.
Bangladesh, however, posted a 19.43 per cent year-on-year growth in the first 11 months of FY23 from leather product exports and earned $361 million, but the figure is 9.13 per cent lower than the target.
Industry insiders said that most of the footwear and leather product factories are bound to import finished leather from LWG-certified factories under bond licence despite the availability of finished leather in the domestic market and export finished goods, which increases their lead time and production costs.
Apex Footwear’s Head of International Business Md Nasrullah said that the country’s main destination, the EU, is facing high inflation and slow economic growth due to the ongoing Russia-Ukraine war. That is why their orders have dropped nearly 40 per cent in recent times.
“Buyers are also deferring shipments and postponing orders. The situation is the same for almost all footwear exporters and its impact is showing on the overall export growth,” he said.
He, however, said that now they are focusing on diversifying and hoping it will help them recover. “We are now trying to increase export to the US and the Asian market. As their economies are better than the EU, the ongoing slow export situation may improve in the upcoming days.”
